Measuring Human Capital

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A nation’s human capital endowment—the knowledge and skills embodied in individuals that enable them to create economic value1—can be a more important determinant of its long-term success than virtually any other resource. This resource must be invested in and leveraged efficiently in order for it to generate returns—for the individuals involved as well as an economy as a whole. Because human capital is critical not only to the productivity of society but also the functioning of its political, social and civic institutions, understanding its current state and capacity is valuable to a wide variety of stakeholders.

The Human Capital Index seeks to serve as a tool for capturing the complexity of education, employment and workforce dynamics so that various stakeholders are able to make better-informed decisions. Last year’s edition of the World Economic Forum’s Human Capital Report explored the factors contributing to the development of an educated, productive and healthy workforce. This year’s edition deepens the analysis by focusing on a number of key issues that can support better design of education policy and future workforce planning.

The global human capital landscape is becoming ever more complex and evolving ever more rapidly. Approximately 25,000 new workers will enter the labour market in the developing world every day until 2020, and more than 200 million people globally continue to be out of a job; yet, simultaneously, there is an expected shortage of some 50 million high-skilled job applicants over the coming decade. We also still live in a world in which there are 90 million children without access to primary school, 150 million children unable to attend secondary school and hundreds of millions of young people who cannot afford to go to university, while the world is experiencing a shortage of 4 million qualified teachers per year.2

A new wave of technological innovation—a Fourth Industrial Revolution—will bring radical change to industries and labour markets worldwide.3 For example, some of the fastest adopters of industrial robots now are emerging economies such as China and the Republic of Korea. With a 24-hour working day, the payback period is now 1.5 years in China, versus 10 years not long ago.4 Though countries such as Singapore have had 30 years to develop through a strategy of continuous skills upgrading via export manufacturing in global value chains, China successfully did the same over the past 20 years. Countries in South Asia and Sub-Saharan Africa might have a remaining window of opportunity of at most 10 years before technology permanently closes the door on such strategies.5

At the same time ubiquitous mobile internet is leading to the emergence of a truly global labour market for the first time. Digital talent platforms have the potential to empower millions of poor and marginalized workers to access the global labour market as never before. This new jobs landscape—where work is global, even if workers are not—can create opportunities for developing countries to leapfrog technological development stages by equipping their workforces to directly tap into the global labour market.

Above all, the transition from education to employment has become fraught with uncertainty around the world. There is a pressing need to break down the divide between ministries of labour and education, and between the global education and employment conversations. Business has a critical role in stepping up investment in education, as well as clearly spelling out desired curriculum outcomes. As today’s economies become ever more knowledge-based, technology-driven and globalized, and because we simply don’t know what the jobs of tomorrow will look like, there is also a growing recognition that we have to prepare the next generation with the capacity for lifelong learning.6 The idea of a one-time education providing people with a lifelong skillset is a thing of the past.

The Human Capital Index takes a life-course approach to human capital, evaluating the levels of education, skills and employment available to people in five distinct age groups, starting from under 15 years to over 65 years. The aim is to assess the outcome of past and present investments in human capital and offer insight into what a country’s talent base will look like in the future. The Index provides country rankings that allow for effective comparisons across regions and income groups. The methodology behind the rankings is intended to serve as a basis for time-series analysis that allows countries to track progress, relative to their own performance as well as that of others. Supplementing the Index, the Country Profiles, available on the Report website, provide detailed, indicator-level information for all countries included in the Index.

As a special feature of this year’s Report, our analysis also makes use of a range of unique data on newly emerging digital labour markets and the platform economy in collaboration with LinkedIn and a number of other partner companies.

In pointing to learning and employment outcome gaps, demographic trends and untapped talent pools, it is our hope that this Report can support governments, businesses, education providers and civil society institutions identifying key areas for focus and investment. All of these entities have a stake in human capital development, whether their primary goal is to power their businesses, strengthen their communities or create a population that is better able to contribute to and share in the rewards of growth and prosperity. The Report also aims to foster public-private collaboration between sectors—as practically demonstrated by its innovative data partnership—ultimately reframing the debate around employment, skills and human capital from today’s focus on problems and challenges towards the opportunities for collaboration that fully leveraging the human capital potential residing in people’s skills and capacities can bring.

Methodology

The Human Capital Index is among the set of knowledge tools provided by the World Economic Forum as part of its System Initiative on Education, Gender and Work. The System Initiative produces analysis and insights focused on forecasting the future of work and skills across countries and industry sectors as well as best practices from businesses that are taking the lead in addressing skills gaps and gender gaps. The System Initiative also creates dialogues and public-private collaboration on education, gender and work in several regions of the world and within industry groups.

The Human Capital Index ranks 130 countries on how well they are developing and deploying their human capital potential. The Index assesses Learning and Employment outcomes on a scale from 0 (worst) to 100 (best) across five distinct age groups to capture the full demographic profile of a country:

0–14 years – the youngest members of the population for whom education is assessed among the most critical factors

15–24 years – youth for whom factors such as higher education and skills use in the workplace are assessed

25–54 years – the bulk of the labour force, for whom continued learning and employment quality are assessed

55–64 years – the most senior members of most workforces for whom attainment and continued engagement are assessed

65 and over years – the oldest members of the population, for whom both continued opportunity and health are assessed

The generational lens sheds light on age-specific patterns of labour market exclusion and untapped human capital potential. In total, the Human Capital Index covers 46 indicators. Values for each of the indicators come from publicly available data compiled by international organizations such as the International Labour Organization (ILO); the United Nations Educational, Scientific and Cultural Organization (UNESCO); and the World Health Organization (WHO). In addition to hard data, the Index uses a limited set of qualitative survey data from the World Economic Forum’s Executive Opinion Survey. The methodology also allows for comparisons within a country as well as between countries. For a detailed explanation of the Index methodology, please refer to the Technical Notes.

This chapter consists of three core sections. The first section covers the overarching results of the Human Capital Index, paying particular attention to high-performing and major economies. This section also examines the results through the prism of regional and income groupings, placing economies’ performance in context. Sections two and three review the two horizontal sub-themes of the Index—Learning and Employment—and consider their variation by age group segments as well as how to prepare for the future.

Specifically, the second section explores the gap between average Learning scores of those over and under age 25, with a focus on skills diversity upon graduation from university and as an aspect of the skills gained at work. The section’s exploration of skills for the future of work considers different strategies for expanding and nurturing talent as well as hiring pools.

The third section considers the structure of the global workforce across the age group spectrum and highlights particular trends in types of employment across geographies. It highlights the effects of technological disruptions on both regular and own-account work, putting a specific spotlight on “gig workers”.

1
This updated definition of human capital comes from Bean, C., Independent Review of UK Economic Statistics, March 2016, p 104. It goes on to add: “Perhaps more so than in the past, human capital is a key driver of a successful economy, as routine tasks are automated and the premium paid to creativity rises.”